Vox EU carry an interview with Patrick here. You should be able to listen to it by clicking the bar below.
A great deal of political debate in Ireland rests on the assumption that Ireland’s rates of taxation are prohibitive. This is generally taken to mean that Irish taxes on income, specifically, are particularly onerous. This perception is rarely, however, assessed with reference to available statistics.
A new NERI Research inBrief by Paul Goldrick-Kelly uses the Organisation for Economic Co-Operation and Development (OECD) data concerning estimates of the effective direct taxes paid by households of varying income and marital status in 2014 to assess Ireland’s rates of taxation on income relative to those observed in other comparable nations.
The NERI Research inBrief series are short four page research notes on various topics of socio-economic interest. Other contributions in the series are available here.
The NERI is on twitter: @NERI_research
With the 2016 Summer Olympics Games upon us, much of the world’s media has descended on Rio to cover more than 300 events, across 28 sports, for the next three weeks. Early reports have already complimented the facilities in place. This should not come as a surprise. An estimated $14 billion has been spent to date and includes new stadia, sports facilities, transport and communications infrastructure, accommodation, security, etc. The scale of investment is on a par with London 2012 but comes on the back of a similar outlay during the 2014 World Cup. That’s close to $30 billion dollars in 24 months.
While the Games will probably be a sporting success, it’s hard to see how this investment can be justified. A growing list of cities, are now home to unused, dilapidated or demolished Olympic venues. Brazil is likely to encounter similar problems in the years ahead despite the promise of “legacy” effects. Even London recently reported a drop in sports participation four years on from the most recent Summer Games.
Brazil of course will be no stranger to this. Estádio Nacional in Brasília, the second most expensive stadium on the planet, was rebuilt for the 2014 World Cup. The 70,000 seat arena is now primarily used as a bus terminal.
Over the past 40 years, only the Los Angles Summer Games in 1984 generated a net surplus. This was a consequence of the weakened bargaining position of the International Olympic Committee (IOC) when faced with just one finalised bid to host the Games that summer. Riots (1968), terrorism (1972), public debt (1976) and boycott (1980) had all marred the Olympics in the decade beforehand. Los Angeles negotiated a deal with the IOC that maximised the economic benefits to the city.
Since 1984 other cities have jumped on the bandwagon, in an attempt to regenerate urban areas and turn a net profit. While Barcelona and London have been notable example of ‘success’, they failed to generate any financial surplus. This should not be a surprise.
Sporting events like these should not be viewed as investments. They are primarily consumption products. In the past the Games have brought other benefits; mainly a sense of national pride and increased levels of life satisfaction and happiness. If one monetises these, research suggests the Games are worth the cost. The richer the country, the greater the gain. Citizens from wealthier countries need a much bigger increase in income, to those from poorer countries, in order to experience the same jump in happiness.
And herein lies the problem for Brazil. The country is in the unique position of probably being the first developing democracy to stage the Summer Games (the extent of Mexican democracy in 1968 is debatable). This has brought with it problems. The riots at the World Cup were a manifestation of this. The extent to which the Games will make the population ‘happier’ is questionable. With political, economic, health, environmental and housing crises all present, these Games may not be a repeat of the past.
Rio is on the brink of its biggest ever party. A $14 billion hangover is waiting. The city needs to make the most of the next three weeks. While they party, the real winners are probably the taxpayers in Illinois and Spain. Two of the failed bidders for the 2016 Games.
The latest exchequer returns are in, and are a bit down relative to trend and to target month-on-month. From the release:
July 2016 Outturn
|July 2016 Target||Excess/Shortfall (€m)||Excess/Shortfall (%)|
The two numbers everyone will focus on are the 13% drop in customs taxes and the 16% drop in corporation tax.
In terms of money in the door up to July, the State is still up 8.5% on last year, so we shouldn’t be too worried about the supply of sweeties come Budget day just yet. The other important thing to note is just how volatile these data are–they bounce around a lot, and you can read very little into one month’s data. So please, before everyone runs off saying Brexit is killing the Irish economy, it isn’t. Or perhaps more accurately, it isn’t just yet.
Another interesting piece of data shows Irish consumers are a bit put off but unlikely to develop Brexit flu from contact with their nearest neighbour.
While UK PMI data is nose-bleed inducing, the recently-released KBC consumer sentiment index shows that Irish consumer sentiment declined in July, but the scale of the drop was relatively modest when measured beside its UK equivalent, as the chart below shows.
The Irish banks, AIB and Bank of Ireland, show up poorly on the stress test of 51 European banks (33 in the Eurozone) released Friday night. The methodology is explained on the EBA website. Briefly, there has not been a review of each bank by a team of EBA inspectors as is implied by some of the media coverage – RTE’s bulletin referred to an ‘examination’. It is a mechanical exercise based on the ‘static’ 2015 balance sheet, as published, with no adjustment for the plausibility of provisions but also with no credit for retained earnings post 2015. The ‘stress’ is essentially a GDP downturn from 2016 through 2018 resulting in a depletion of capital adequacy as against the end-2015 balance sheet number.
The scale of the depletion reflects the extent of the assumed downturn. The essential reason for the sharper loss of capital adequacy for the Irish banks is that the downturn assumed for Ireland is greater. Against a baseline, the cumulative adverse GDP shock for the main Eurozone countries included is as follows:
The adverse shock assumed for Ireland is the largest and 3.2% above the average for the others shown. There are some other factors but the EBA release makes it clear that these numbers are the main driver of the projected capital depletion. The basis for the large Irish shock is a calibration against the experience over 2008 to 2011 when the downturn in Ireland was more severe than elsewhere.
The EBA may have sacrificed plausibility to uniformity of treatment – the exercise is in any event an input into a further phase called SREP, the supervisory review and evaluation process, rather than a definitive assessment of bank capital adequacy. The Irish banks, and numerous others, may of course need to generate or raise more capital but the relative worsening in their position flows from the assumptions employed and not from any ‘news’ uncovered by the EBA sleuths.
The recent publication by the CSO of the 2015 National Income and Expenditure Accounts generated a lot of reaction. There is no doubt that a 26.3 per cent real GDP growth is bizarre but it was not farcical, false or based on fairy tales.
Many commentators went out of their way to highlight that the figures did not characterise what was happening “on the ground” in the Irish economy. But this seems like a bit of a strawman. Instead of being told what the figures were we were been scolded over what they weren’t. No one said the economy was growing at 26 per cent. Arguments against using GDP in an Irish context have made for the past quarter of a century. Even as recently as March, when the first growth estimates for 2015 were provided, there were plenty of people who pointed that the underlying growth rate of the economy was probably around half of the 7.8 per cent growth rate in real GDP shown at that time.
But a 26.3 per cent real GDP growth rate is very very unusual. And one that deserves understanding rather than dismissal. However, the discussion of the figures has generated more heat than light. At the briefing it seems three items were identified as having oversized effects on the national accounts’ aggregates. These were:
- aircraft leasing
- inversions and corporate restructurings, and
- asset transfers to Ireland